Lesson Objectives Understand the meaning of break even. Ability to calculate break even point using the contribution method.

Key terms from last lesson: :

Key terms from last lesson: Total Variable costs = variable costs x output level. Total costs = Fixed costs + variable costs. Total revenue = price per unit x sales.

What is break even?:

What is break even? It is the point at which the business makes just enough revenue to cover their costs. In other words profit = 0 Businesses must make a profit to survive. To make a profit, revenue must be higher than costs. “A business breaks even if it doesn’t make a profit or a loss”

Calculating the break even point:

Calculating the break even point There are two ways to calculate the break even point. The two ways are as follows: - The CONTRIBUTION METHOD. - PRODUCING A BREAK EVEN CHART.

The Contribution Method:

The Contribution Method This involves a two part calculation: Selling Price per unit – variable cost per unit = contribution (towards fixed costs). AND Fixed costs divided by contribution = Break even point.

Contribution Method - Example:

Contribution Method - Example If fixed costs = £2000, variable costs = £8 per unit, Selling price per unit =£10. Then break even would be: Price per unit – variable cost per unit = contribution (towards fixed costs). £10- £8= £2 (Contribution towards fixed costs) Fixed costs divided by contribution = Break even point. £2000 divided by 2 = 1000 1000 products will need to be sold in order order to break even and cover all their costs.

Task – Using the information from the previous slide answer the following questions.:

Task – Using the information from the previous slide answer the following questions. Would the business be in a profit or loss situation if they sold 1001 units? What would the business in a profit or loss situation if they sold 999 units? How much profit will the business make if they sell 1001 units?

Task – Calculate the following the break even points using the contribution method:

Task – Calculate the following the break even points using the contribution method [1] Fixed costs £4000 Selling Price £400 Variable Cost £200 [2] A business has the following costs: Rent £200 per month Rates £30 per month Salaries £450 per month Selling price £9 Raw materials £7

Task:

Task A business making t-shirts has the following costs: Fixed Costs £50,000 per year Variable Costs £3.70 per t-shirt Selling Price £12 each [a] Calculate the break-even point? [b] What would be the revenue as break-even?

You do not have the permission to view this presentation. In order to view it, please
contact the author of the presentation.

Send to Blogs and Networks

Processing ....

Premium member

Use HTTPs

HTTPS (Hypertext Transfer Protocol Secure) is a protocol used by Web servers to transfer and display Web content securely. Most web browsers block content or generate a “mixed content” warning when users access web pages via HTTPS that contain embedded content loaded via HTTP. To prevent users from facing this, Use HTTPS option.

By: narakasura (137 month(s) ago)

it so good to understand